7) USDJPY

Technical Analysis (MA, RSI, STOCH, MACD, ADX)

• M30 - DOWN
• H1 - DOWN
• H4 - RANGE
• D1 - UP
• W1 - UP
• MN - UP

• Resistance: 127.00
• Support: 124.70, 124.00, 121.20

The currency pair ended its sixth consecutive trading week higher, this time the currency pair added +245 pips, and ended the week right below the 126.70 support level, which is a two-decade high. The main growth driver for the currency pair is, of course, the differences in policy between the Fed and the Bank of Japan, which were confirmed after the publication of macro data from the US and the Fed's hawkish comments. Also this week was marked by periodic demand for protection. At the end of the week, the Fear-Greed indicator returned to a neutral state and now points to 45.

In terms of risks for the market, they are the same, geopolitics and COVID.
Peace talks have stalled and a ceasefire seems unlikely. Negotiations continued, but the Ukrainian Foreign Minister said that there was no progress and it was unlikely that there would be. The Russian Defense Ministry has confirmed that the flagship of the Black Sea Fleet 'Moskva' sank while being towed to the port in stormy weather. Also, Russia this week announced several cases of attacks on border settlements by the Ukrainian military. Official Kyiv announced a missile attack on several objects in the capitals of Ukraine. Deputy Chairman of the Federation Council Committee on International Affairs A. Klimov said that the military special operation in Ukraine would end pretty soon. According to Senator Klimov, it will end as soon as Ukraine becomes safe for Russia and the whole world, and that Russia does not intend to drag out this process.

China's Ministry of Industry said it was sending teams to Shanghai to ensure the resumption of production and the operation of key industrial companies. Recall that Shanghai, a major manufacturing and economic center of China, has been under quarantine since March 28. After the introduction of quarantine, most enterprises, markets and shops stopped working in Shanghai, people were ordered to stay at home. During the week, various news came, first there were reports of easing restrictions, then after that it was refuted. On Saturday, 3,238 new confirmed cases of locally infected COVID-19 coronavirus infection were detected in Shanghai, as well as 21,582 new asymptomatic carriers of coronavirus infected locally, the city health committee said today. So the quarantine will continue, recall China, the only country that adheres to a zero disease policy.

Yesterday, the Chinese military said it was conducting drills around Taiwan because of 'wrong signals' sent by the US to Taiwan's leadership. In other words, China is conducting military exercises in response to the US delegation's visit to Taiwan. These events unequivocally destabilize the situation in the region, especially in the light of recent events in Ukraine. It is quite possible that in case of any bright statements from one side or the other, the demand for protection, and in particular for the safe yen, will grow.

Among the US macroeconomic data released this week, the centerpiece was of course the biggest monthly increase in the consumer price index since September 2005. The pressure on households from the surge in the prices of essentials is real and was evident in this week's retail sales data. Below the surface, however, there are signs that pandemic-related inflation is starting to ease. There was some market comment that the monthly CPI increase of 0.3%, less than the 0.5% forecast and the February level, indicates that inflation has reached its peak. While this is possible, the continued surge in the producer price index, which will inevitably be passed on to consumer prices, makes it doubtful.

Meanwhile, the US Dollar Index (DXY) regained strength on a stronger recovery in US Treasury yields. DXY ended the week above 100.00. The 10-year US Treasury yield ended the week at a three-year high of 2.828%. US Treasury yields soared amid aggressive plans to tighten the Federal Reserve. These expectations were reinforced by the words of the New York Fed President and member of the Federal Open Market Committee (FOMC) John Williams.

John Williams, in an interview with Bloomberg TV, said the Fed should move closer to raising interest rates by 50 basis points in May. Williams added that reducing inflation in a tight labor market will be a challenge for the Fed. In addition, he said that the balance sheet cut could be delayed from June if the Fed announces a massive interest rate hike in May.

CME Group's FedWatch tool shows that markets are estimating almost a 70% chance of a consistent 50 basis point Fed rate hike in May and June, up from 55% last week. Despite this 15% increase in the chances of a general 100 basis point gain by June, a slight pullback in Treasury yields towards the end of the week suggests that the Fed's aggressive outlook is now largely priced in.

It is because of the rise in the yield of benchmark Treasury bonds that the yen is now at a 20-year low. The main driver of the yen's sharp fall is the widening yield gap between the US and Japan, as the yen is very sensitive to widening yield spreads. Japan's central bank showed no signs of intervening this week to support the yen, but it may change its stance if the currency pair approaches the 130 level, a level that has been repeatedly announced. Now many see the 130.00 level as critical for the BoJ, above which the BoJ will act to strengthen the yen.

This week, the Bank of Japan 'noted' the yen's rapid depreciation, saying it is closely monitoring the market, but with the national consumer price index at 0.9% yoy in February and a base value of -1%, it is not going to interfere in foreign exchange for now. markets. Japanese producer prices rose 9.5% year-on-year in March, slightly below February's 9.7% but above the forecast of 9.3%. For the month, the Producer Price Index (PPI) added a modest 0.8% after gaining 0.9% in February.

Also, Japanese Finance Minister Shun'ichi Suzuki said that a weak yen is bad when there is a serious increase in the cost of raw materials. Despite the fact that Japan imports almost all raw materials. The sharp depreciation of the yen is worrying because of the adverse impact on households due to the loss of purchasing power. In fact, it is also likely to lead to increased pressure from the public. So there are rumors that Prime Minister F. Kishida is likely to announce a big fiscal stimulus package in June ahead of the June 10 upper house elections and emergency measures to help mitigate the impact of rising energy and food prices.

The mantra that a weak yen is 'good for business' because it makes Japanese exports more attractive may have been appropriate when raw materials were cheap and the country had exports. Now even businesses do not always want a weaker exchange rate. The yen fell to its lowest level against the dollar in 20 years and against the euro in four years. A recent Reuters poll showed that three-quarters of Japanese firms say the weak yen is hurting their businesses. There is a widespread fear that the depreciation of the yen will dampen consumption and investment. Nearly half thought exchange rate changes would hurt revenues, more than a third said it would hurt profits, and an eighth said the impact would be significant.

With all of this, the Bank of Japan is talking about a likely slowdown in economic growth to support this fragile economic recovery, it is still maintaining its ultra-loose monetary policy, further weakening the yen. Recall that the Bank of Japan recently intervened to protect its control over the yield curve when the JGB showed some gains.

Many major central banks are already tightening monetary policy in response to rising inflation, but the BOJ does not have this problem. Inflation in Japan has risen due to high commodity prices and supply chain disruptions, but the consumer price index remains below 1%. This was already the case in 2018, when inflation rose briefly to 1.5%, but after that, without the intervention of the BoJ, it returned to zero within a few years. Although almost all analysts have already said that this global crisis does not even think of ending and that the processes that have begun will continue and worsen, so inflation in Japan will most likely continue to grow.

So now there is an interesting prospect, acting according to the usual strategy of 'Buy the rumor, sell the fact', as well as being guided by the trendy tactics of reflation trading, investors can start buying the yen when it is very cheap. Thus ensuring a confident rollback down. All this will be possible if the idea of ​​a significant increase in inflation in Japan is confirmed next week. So this indicator will be the focus of the markets.

There will be no high-level data releases in the economic calendar in the first half of next week, which could significantly affect the behavior of the currency pair. On Thursday and Friday we are waiting for quite important publications and speeches. It is also worth keeping an eye on the ongoing Ukrainian crisis, as well as reports from China and Taiwan.
Thursday:
- The number of initial claims for unemployment benefits in the United States
- Speech by Fed Chairman D. Powell
Friday:
- National Consumer Price Index (CPI) (YoY) (Mar)

The classic indicator of the value of a currency is central bank interest rates. This assessment of the strength of the currency, decisively benefited the US dollar. The huge difference in inflation between Japan and the US, and the necessary policy action, could cause the yield curve spread between US Treasuries and JGBs to widen significantly. Plus, don't forget about the Bank of Japan's policy of yield curve control, in which the yield on 10-year Japanese government bonds (JGB) is close to zero, BoJ once again confirmed its commitment to this policy by conducting bond buying operations.

Japan's economy has lagged and slowed significantly for years, and this gap with the US will continue and widen whether both countries or the world as a whole find themselves in an inflation-and-deficit-driven recession this year. The energy price shock currently affecting the global economy will hit Japan harder since almost all of its energy is imported. While the US is itself a net exporter.

Amid all this, a meta-prediction can be made that the US dollar, thanks to the Fed's promise, will be stronger compared to the currencies of countries whose rate prospects are static, including Japan. In other words, we will observe a more bullish market for the currency pair throughout 2022. On the other hand, BoJ officials say that the level of 130 will be critical for the Bank of Japan, after which it will be forced to intervene and begin direct interventions in order to strengthen the national currency.